Covid optimism lifts business confidence in UK to five-year high

Business confidence has jumped to its highest level in five years as firms look ahead to Covid-19 lockdown restrictions easing and a bounce in sales during 2021, according to a leading barometer of corporate activity.

Companies are also preparing to increase exports and employment in the second half of the year in a clear signal that they expect a strengthening economic outlook after a successful vaccination programme.

The business confidence index, compiled by the ICAEW accountancy body from a survey of 1,000 firms, showed confidence for the year ahead rising from -19 in the fourth quarter of 2020 to +10 in the first quarter of 2021.

However, the rebound will be against a weaker economic backdrop than last year after a big hit to sales in the first three months of 2021, mostly the result of the third lockdown, forcing even more firms to reduce output and jobs.

Last week the British Retail Consortium and Barclaycard said spending in January was at its weakest since May, as booming online activity failed to compensate fully for the closure of stores.

Michael Izza, the ICAEW’s chief executive, said businesses reported the fastest drop in employment for a decade as they struggled to cope with falling sales. More than half of firms were operating at less than capacity.

The bounce-back in confidence was also much weaker so far than in 2009 when the index, which began in 2003, climbed to 25.8 in the aftermath of the banking crash.

Official figures last week showed that the UK suffered the worst annual fall in GDP for 300 years in 2020. The 9.9% drop was mostly felt in the spring and summer before a modest recovery of 1% in the final quarter of the year.

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Izza said 2020 was “an unparalleled struggle for business”, but the mass rollout of a vaccine and a Brexit trade deal had provided the foundations for a recovery in 2021.

“Rising confidence among businesses is an encouraging sign of things to come and a predicted growth in employment is good news for people who have lost their jobs over the past year,” he said.

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“As we look towards spring and summer, we want to see the chancellor use the upcoming budget to provide a bridge to sustainable and resilient economic recovery, getting people back to work, helping exporters, and investing in digital technology to make our businesses competitive in the 21st century economy.”

The ICAEW barometer is based on a survey that asks respondents to rank their level of confidence between +100 to show much more confidence and -100 to show much less. A score of zero indicates that the outlook is the same as the previous quarter.


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